Quanyuantang Pharmacy: A Benchmark in China's Pharmaceutical New Retail with 50% O2O Market Share in Chengdu

In late June, VCBeat met with Chen Zhouhua, CEO of Quanyuantang, at a café. With a sore throat, he had just purchased medication through Quanyuantang Pharmacy’s O2O channel; from order placement to delivery, it took only 20 minutes.

The rapid delivery of medications is attributable to Quanyuantang’s continuous optimization of its new pharmaceutical retail business over the past two years. By leveraging digital technologies to integrate online and offline channels, Quanyuantang has successfully established a new operational model for pharmaceutical retail, achieving commercial optimization and upgrading of both its e-commerce platform and physical retail stores. This has enabled the creation of an innovative business model for Quanyuantang Smart Pharmacies, characterized by “small storefronts, extensive product categories, high-frequency transactions, and quality service.”

Since launching its comprehensive pharmaceutical new retail operations in 2018, Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. has rapidly emerged as an industry benchmark in China’s pharmaceutical new retail sector within just two years, delivering impressive results: over 200 directly operated new retail pharmacies across seven cities nationwide; ranking among the top five in China for transaction volume at new retail pharmacies; achieving the highest average sales per store nationwide; and capturing more than 50% of the O2O market share in Chengdu and 45% in Chongqing.

Six years ago, in 2014, Quanyuantang launched its Tmall flagship store, targeting the then-booming pharmaceutical e-commerce market. Upon entering this sector, Quanyuantang quickly demonstrated strong capabilities by establishing a comprehensive multi-platform operational ecosystem. It opened a total of 19 official stores and achieved an annual transaction volume of 6 million orders in 2019, ranking among the top three players in the pharmaceutical e-commerce industry.

Surprisingly, the pharmaceutical e-commerce industry has been developing at an astonishing pace. Chen Zhouhua, CEO of Quanyuantang, lamented that in just a few short years, pharmaceutical e-commerce has already become a traditional industry. “The sector is crowded with players employing rudimentary strategies, while traffic acquisition costs have surged and sales growth has slowed. Price wars have become the dominant mode of competition, making it imperative to optimize and upgrade business operations.”

What should be the next step? How can business optimization and upgrading be achieved? How can pharmaceutical e-commerce regain its growth momentum and establish a sustainable development model? Quanyuantang began to contemplate the future of pharmaceutical e-commerce and explore new directions for corporate development. Ultimately, leveraging its keen market insight, Quanyuantang chose to embrace new retail.

Chengdu Quanyuantang Pharmacy Chain Joint Stock Co.,Ltd. believes that new retail in the pharmaceutical industry will become a new trend and a novel business model. Centered on better serving customers, pharmaceutical new retail promotes the integration of online and offline channels. By leveraging advanced technologies such as big data and artificial intelligence, it fosters genuine synergy between the power of the internet and physical pharmacies, thereby enhancing consumers’ medication purchasing experience.

“New retail, on the one hand, meets the demand for consumption upgrades among the younger generation, and on the other hand, enhances the operational efficiency of offline pharmacies through mobile internet technology,” said Chen Zhouhua. “Importantly, there is no clear boundary between pharmaceutical e-commerce and new retail. Quanyuantang’s original intention in developing new retail is to revitalize its pharmaceutical e-commerce business through an online-offline integration model, thereby creating more growth opportunities for its physical pharmacy stores.”

In the second half of 2018, the team from Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. traveled across China to investigate domestic new retail enterprises, drawing on experiences from various industries to explore and identify new retail strategies suitable for pharmaceutical distribution channels.

During the visit, two distinctive features of Hema Fresh left a deep impression on Quanyuantang. “First, the backend supply chain was reengineered to transform the back-of-store area into an e-commerce-grade warehousing and distribution center, without affecting the front-end supermarket displays, thereby achieving excellent control over costs and home-delivery times. Second, it successfully cultivated consumers’ online shopping habits and achieved efficient customer retention.”

Reflecting on this inspection tour, Chen Zhouhua stated, “The most significant insight is that while new retail encompasses a vast array of new technologies and novel shopping pathways, its essence remains commodity retail. Therefore, the focus should be on aligning product supply with consumer demand.”

“In the early stages of launching its new retail business, Quanyuantang first introduced e-commerce operational mindsets and models—such as system workflows and data-driven operations—into its traditional brick-and-mortar stores. ‘By October 2018, we clearly observed the high growth driven by online-offline integration: offline store performance doubled, and order volumes on platforms such as Meituan, Ele.me, and Ali Health surged to rank first in Chengdu.’”

Strong market performance has given Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. the confidence to vigorously expand its new retail business. By the end of 2018, after numerous trials, the company had finally refined a new retail business solution tailored to pharmacy settings and capable of addressing consumer pain points.

In March 2019, Quanyuantang formally proposed its new retail strategy and clarified its core business direction. Quanyuantang’s pharmaceutical new retail operations are technologically supported by a cloud-based data middle platform management system, returning to the essence of the retail format and restoring product selection rights to consumers.

To achieve the aforementioned objectives, Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. leverages value-creation engines such as the integration of online and offline traffic entry points, user retention through diversified platforms, internet information flow capture, multi-channel category expansion, and the establishment of a three-tier warehousing model. Through specific measures including community-based internet healthcare services, an O2O medication purchasing platform, intelligent medication search kiosks, a prescription drug circulation platform, 30-minute home delivery, 24/7 operations, professional pharmaceutical care consulting, digital consumer electronic health records, intelligent drug demand forecasting, and an smart logistics and warehousing system, the company achieves deep integration of its online operations, offline presence, and warehousing logistics.

The operational logic of O2O models stands in stark contrast to that of traditional pharmacies and their supply chains. In traditional pharmacies, the sales structure is dictated from the top down, with a focus on product gross margins and average transaction value. In contrast, the sales structure in new retail is entirely consumer-driven. By leveraging consumer shopping data analytics, new retail principles are integrated into every operational decision, thereby returning the power of choice to consumers and realigning with the fundamental essence of retail.

To address the issue of untimely inventory synchronization inherent in traditional ERP systems that replenish stock on a daily or weekly cycle, Quanyuantang developed a Cloud Data Middle Platform Management System as the technological backbone for its new retail operations. This system achieves comprehensive integration between online and offline store ordering and consultation processes and the operational backend, encompassing the order management system, membership system, product management system, and performance management system. Through this platform, Quanyuantang enables multiple functionalities, including performance data analytics, intelligent site selection, efficient product assortment, category management, and scenario-based services.

Enhancing consumer experience and optimizing services are the key highlights of new retail, representing its fundamental distinction from traditional pharmacies and pharmaceutical e-commerce platforms. Chengdu Quanyuantang Pharmacy Chain Joint Stock Co.,Ltd. leverages various auxiliary tools to improve staff productivity and sales per square meter, achieving online-offline integration. It adopts a differentiated business model featuring 30-minute home delivery and professional pharmaceutical care consulting services.

It is important to note that, unlike other commodities, pharmaceutical products are characterized by their professionalism, complexity, and essential nature, thereby necessitating more personalized services. Consequently, providing professional pharmaceutical care consulting has become a key function for new retail pharmacy models to enhance user stickiness and establish distinctive market features. Currently, Quanyuantang boasts a pharmaceutical care consulting team of over 200 members, available online 24/7. Leveraging data analysis tools such as knowledge bases, the team delivers precise, professional, and personalized pharmaceutical care consulting services to customers. It is reported that Quanyuantang’s pharmacists undergo more than 84 hours of training annually on diseases across eight major medical specialties. On average, each pharmacist handles 300 consultations per day, thereby strengthening the core competitiveness of Quanyuantang’s new retail business.

Today, Quanyuantang is not only a pioneer but also a leader in China’s new retail pharmaceutical sector. Chen Zhouhua believes that Quanyuantang has always adhered to the core philosophy of “integrating online and offline channels.” Its specific strategic steps involve first deploying “air force” (online) to pave the way, then achieving “air-ground integration” (combining online and offline operations), and finally engaging in “street-level combat” (establishing a physical presence in communities and close to consumers to capture consumer mindshare).

By leveraging this strategy, Quanyuantang operated over 200 direct-operated new retail stores in 2019, covering seven cities across China, and provided new retail empowerment services to more than 10,000 pharmacies. To date, this business has expanded to cover over 150 cities in 22 provinces and municipalities nationwide. According to Quanyuantang’s projections, by the end of 2020, the number of pure online transactions through its direct-operated new retail stores would exceed 5 million, with the total gross merchandise value (GMV) from both online and offline channels approaching RMB 1 billion. Meanwhile, in its two core markets of Chengdu and Chongqing, Quanyuantang’s O2O market share is expected to remain above 50% and 45%, respectively.

Over the past two years, the new retail model in the pharmaceutical sector has continued to gain momentum, becoming a hot topic in the pharmaceutical market. Discussing the prospects and market potential of the pharmaceutical new retail industry, Chen Zhouhua stated that the market space for pharmaceutical e-commerce is determined by its penetration rate within the industry. According to the latest data released by Menet, under the Southern Medical Economic Institute, the sales volume of China’s pharmaceutical e-commerce market reached RMB 125.1 billion in 2019, while the overall pharmaceutical retail market had already attained RMB 662 billion. This indicates that the e-commerce penetration rate was approximately 18.89%.

Pharmaceutical new retail is different. By integrating online and offline channels, it directly enters the RMB 662 billion pharmaceutical distribution market, which means that the ceiling for pharmaceutical new retail is the same as that of the overall pharmaceutical retail market. Moreover, driven by the benefits of prescription drug outflow from hospitals, the prospects for pharmaceutical new retail are promising. The team at Chengdu Quanyuantang Pharmacy Chain Joint Stock Co., Ltd. holds a “442” view: “In the future, 40% of the pharmaceutical market share will belong to new retail, 40% to traditional offline pharmacies, and 20% to pharmaceutical e-commerce.”

Currently, pharmaceutical new retail has moved past its nascent stage and entered the early phase of development. The new retail model in the pharmaceutical sector continues to gain momentum, prompting many companies to consider entering the market. Chen Zhouhua candidly remarked, “Many pharmaceutical companies have only a superficial understanding of new retail, believing it merely involves listing online pharmacies on O2O platforms.” In reality, new retail is a complex discipline that entails comprehensive operational upgrades for retail stores and enhancements to product supply chains. To support more small and medium-sized pharmacy chains in their new retail transformation, Quanyuantang has launched a New Retail Empowerment Program.

In the future, Quanyuantang will continue to deepen its new retail strategy in the pharmaceutical sector and expand this model across China. On one hand, it will strengthen its presence in cities where it has already entered, increasing the market share of its new retail model in various regions. On the other hand, it will intensify efforts to empower traditional pharmacies by enhancing store efficiency and sales per square meter through multiple dimensions such as cloud data middle-platform management, O2O order integration, supply chain product enhancement, and professional service support, thereby helping traditional pharmacies transition to new retail.

It is worth noting that within the new retail empowerment system, Quanyuantang’s partners extend beyond traditional pharmacies to include third-party platforms and upstream brand manufacturers. In Quanyuantang’s view, although these third-party platforms and brand manufacturers have a clear intent to explore new retail models in the pharmaceutical sector, their independent efforts are likely to fall short of desired outcomes due to constraints in talent, experience, resources, and distribution channels.

Quanyuantang, leveraging its unique advantages—including a deep understanding of the new pharmaceutical retail market, precise control over operational processes, and robust supply chain distribution support—is well-positioned to assist diverse enterprises in advancing into the era of new pharmaceutical retail. It is reported that in recent years, both third-party platforms such as Meituan, Ele.me, and Pinduoduo, and upstream brand leaders like Dong-E-E-Jiao and GSK, have actively partnered with Quanyuantang to jointly explore new models for driving product sales in the new pharmaceutical retail landscape.

“The Quanyuantang team has always remained committed to a mission: to drive the transformation and upgrading of the pharmaceutical retail industry, popularize the operational logic and service philosophy of the new retail model among more pharmaceutical enterprises, accelerate the transition of pharmaceutical retail models to align with future consumer purchasing habits and industry development trends, and thereby provide consumers with higher-quality services. Therefore, Quanyuantang will continue to advance with small but rapid steps, continuously optimize its pharmaceutical new retail model, and lead the industry’s transformation and upgrading,” concluded Chen Zhouhua.